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It has been a long-held article of faith among central bank policy makers that there is no such thing as a free lunch – because monetary policy that aims for lower unemployment will result in higher inflation. Crunching the numbers leads economist Olivier Blanchard to revisit a policy favorite of the 1960s, the Phillips Curve, and to offer a Mad Men twist to central bankers’ arsenals. He posits that a free lunch may be possible, at least for a while, as long as the economy resists the temptations of gluttony. getAbstract recommends this thought-provoking contribution to discussions on monetary policy to economists and financial services professionals.

In this summary, you will learn

How the Phillips Curve has evolved in the United States,

Why lower unemployment has a muted impact on inflation today and

Why central bankers should consider “flexible inflation targeting.”

About the Author

Olivier Blanchard, formerly research director at the International Monetary Fund, is a senior fellow at the Peterson Institute for International Economics.

Summary

The conduct of US monetary policy is challenging central bankers: Inflation’s behavior since the 2008 global financial crisis has been atypical of previous trends. The policies the Federal Reserve pursued in the 1960s and 1970s adhered to the principle of a trade-off between higher inflation and lower...